IndyMac Seeking to Pare Balance Sheet by $2.5B

Feeling the same credit problem that has forced other real estate investment trusts and mortgage lenders into bankruptcy, the Pasadena, Calif., company aims to reduce its balance sheet to $5 billion at the end of the year, from $7.5 billion at the end of September.

"Our ability to access financing or to securitize have both been impaired in this marketplace," said Michael W. Perry, the company's president and chief operating officer. "The prudent thing to do is hunker down."

According to its latest filing with the Securities and Exchange Commission, IndyMac has roughly $3.7 billion of committed credit lines and $2.5 billion of uncommitted lines, which can be cut off at any time.

Because most of IndyMac's credit lines are committed, "the situation is not as dire" as it is for other real estate investment trusts and lenders, said Art Bender, analyst at Sutro & Co. "It would take a much more difficult set of circumstances for lenders to pull back those lines of credit."

Mr. Perry said the uncommitted lenders have assured IndyMac that they will not pull the rug out and are working with the company to reduce its leverage. The committed lines don't expire for more than a year, he said, adding, "Who knows what will occur a year or two years from now?"

As a real estate investment trust, IndyMac buys loans and securities with borrowed money and pays out most of its income in dividends. As a conduit, it originates loans with the intent to securitize.

The company is pulling back from two riskier types of lending. It plans to keep building its portfolio of construction loans through the end of the year but begin to shrink it in January.

"It may be fortuitous that we had to slow that down," Mr. Perry said. "We may be going to a part of the cycle where construction lending is a bigger risk."

In its "super-jumbo" lending program - home mortgages of $1 million or more - IndyMac has raised interest rates "to the point where we're not getting as much of that business as we've done before," he said.

On Oct. 15, Fitch IBCA downgraded IndyMac's senior debt by one notch, to BBB, citing "concerns about the general decrease in liquidity for market- funded financial companies, as well as the current environment's impact on IndyMac's profitability and access to long-term capital."

In early October, the same week the commercial mortgage REIT Criimi Mae filed for bankruptcy, IndyMac's stock price fell 45% to a nadir of $8.75 on Oct. 7. The stock has recovered ground since but not all that it lost; early Thursday afternoon, IndyMac was trading at $11.625 a share, down from $12.1875 late Wednesday.